02 Jun Bangladesh Bank’s Financial Stimulus Funds for Businesses to address COVID-19
The government, through Bangladesh Bank, has declared several Financial Stimulus Funds for businesses in various sectors as well as for low income professionals so that they can survive the deadly and unpredictable Corona virus situation. The funds have been mainly addressed to save the businesses of the country, and particular focus was given to the export-oriented industries, CMSME and agricultural sector.
Stimulus fund for export-oriented businesses:
A large part of Bangladesh’s export earnings and GDP is from the export of ready-made garments, a sector which employs 3.6 million workers. The global pandemic caused most buyers in the US and Europe to cancel or postpone their orders causing huge risk of unemployment. As such, BDT 50 Billion fund is geared towards financing active export-oriented manufacturing companiesonlyto pay their workers’ wages for the months of April-June 2020.
Applicants are entitled to receive no-interest loans (only a one-time service fee of 2% payable to their bank), which their banks will disburse directly to their workers’ accounts, having received the required funds from Bangladesh Bank. The companies applying for the loans shall export at least 80 % of its manufactured products and must have paid off salaries for the months of December 2019 to February 2020. Loans are to be repaid in 18 equal instalments within 2 years, including 6 months’ grace period. On failure, 2 % penal interest on the arrears may be imposed.
Financial stimulus package for manufacturing and service sectors:
BDT 300 Billion fund has been announced for businesses in the manufacturing and service sectors which is to be subsidized as interest payments to theworking capital loans availed by the businesses under this package. The loans would be disbursed by commercial banks from their own funds at 9% interest rate, 4.5% of which would be payable by the borrower while the rest would be shouldered by the government from this fund. The duration of the loan under this package will be 1 year.
Companies (except CMSME) in the manufacturing and service sector affected by the Corona virus (COVID-19) will be eligible for loan under this package. However, no loan defaulters neither companies classified as bad/defaulter whose loan has been rescheduled thrice will be eligible to apply for loan.
Companies are required to obtain at least a marginal credit rating in line with the guidelines on Internal Credit Risk Rating System for Banks (ICRRS).
Refinance scheme forlow income professionals, farmers and marginal/micro businessmen:
This BDT 30 Billion fund is geared towards low income professionals, farmers and marginal/ micro businessmen who are traditionally subscribers of micro-credit institutions. The Bangladesh Bank would provide funds to banks at a low cost of 1% interest p.a. to be disbursed to micro-credit institutions for disbursement to its subscribers as micro-loans upto BDT 75,000 per subscriber. In case of groups consisting of minimum five members, the maximum investment amount will be BDT 0.3 Million. In case of single small entrepreneur, the amount of maximum loan will be BDT 1 Million. For a joint-venture under a group of persons consisting of minimum 5 members, the maximum loan amount will be BDT 3 Million.
Banks who receive the fund at 1% interest from Bangladesh Bank would disburse the funds to micro-credit institutions at 3.5%, while the maximum interest payable at the subscriber level would be 9%. No other charges/fees will be charged except for the costs of admission, pass book, loan form and undertaking performed through non-judicial stamps.
Low-income professionals, farmers, marginal/small businessmen who are associated with local agriculture or with other productive activities will be eligible for loan under this Refinance Scheme.
Special Credit/Investment facility for CMSME enterprises:
BDT 200 Billion Fund has been announced as working capital loan to the Cottage, Micro, Small and Medium Enterprises (CMSME) which have been affected by the outbreak of Corona virus (COVID-19).
Commercial banks and NBFIs will provide working capital loans to the affected CMSMEs from their own funds at 9% p.a. interest, 5% of which would be shouldered by the government from this fund. The period of this loan may be up to 3 years, however, any entrepreneur organization will receive the subsidy from the government for a maximum period of 1 year under this package.
Pre-Shipment Credit Refinance Scheme:
This BDT 50 Billion is to make available low-cost loans to exporters as pre-shipment credit.The funds are disbursed to exporters amounting upto 10% of their export consignment value by commercial banks and NBFIs at an interest rate of 6% p.a. Bangladesh Bank provides the funds to the disbursing bank/NBFI at an interest rate of 3% p.a.
Any export oriented company is eligible to apply for loan under this Refinance Scheme. A client of the bank will get this credit facility multiple times but not exceeding 1 year in total. Following the applicable rules and guidelines, the bank will evaluate its relationship with the individual client and decide on case to case basis.
Special Incentive Re-financing Scheme for the Agricultural Sector:
The intended beneficiaries of this BDT 50 Billion fund are agricultural business ventures, such as horticulture, fisheries, poultry, dairy etc., and entrepreneurial enterprises who directly purchase agricultural products from farmers.
The disbursement mechanism is divided into two stages. Firstly, interested banks are required to apply for refinancing to Bangladesh Bank on monthly basis, subject to disbursing loans to the customers on or before 30 September 2020. The amount to be refinanced by Bangladesh Bank in favour of a participating bank will be equal to aggregated amount of loans disbursed to its customers under this scheme by such participating banks. Banks after disbursing loans at the customer level shall make application to the Bangladesh Bank for refinancing. Re-financed amount shall be repayable by the participating banks within 18 months (12 months + 6 months with grace period) from the date of re-finance. Fixed interest rate of 1 % will apply on the refinanced amount.
In the second stage,a participating bank will disburse such amount to the customers, which is consistent with the amount it may receive from Bangladesh Bank. The affected customers of a participating bank may avail up to an additional 20 % of their existing credit facilities. For new customers, a participating bank may, after assessing and determining the limit on the basis of necessary assessment, disburse the amount up to the limit so determined. A participating bank must not distribute more than 30 % of fund allocated to it in favour of a single sector. For disbursing the loans under this scheme, banks will have to comply with the provisions of the Agricultural and Rural Credit Policy. Considering banker-customer relationship, banks will assess the eligibility of the customers on a case to case basis and will maintain separate accounts. The customers shall repay the loan within 18 months (including 6 months grace period). Fixed interest rate of 4 % will apply for all customers.
Authored by Wahid Sadiq Khan, Associate; Compiled by Ashfaq Ahmed, Research Associate